Why You Should Care About the Latest Chapter in the Showdown Between Apple and Qualcomm

The legal showdown between Apple and Qualcomm is nothing new. The two tech giants have been sniping at each other in courts spanning three continents for years now. But Monday marked the start of the main trial in what’s essentially the world’s biggest patent/antitrust case – and depending on who wins, the implications are huge for tech.

The basics are as follows. Two years ago, Apple sued Qualcomm for more than $1 billion in unpaid royalties, claiming Qualcomm engaged in unfair patent licensing practices. Meanwhile, Qualcomm’s claim to fame is that it essentially pioneered CDMA – a type of wireless communication network – in the 1990s and has since made its bread and butter by charging royalties on its 130,000 patents. With regard to smartphones, Qualcomm charges about five percent of a handset’s selling price thanks to its various wireless patents. That means even if a smartphone doesn’t use a Qualcomm modem, smartphone makers like Apple still have to pay that fee. And if a maker does use a Qualcomm chip, it not only has to pay for the chip but also royalties that come along with it.

Qualcomm, of course, views Apple’s claims as bunk. The chipmaker has also filed a countersuit against Apple claiming it’s also owed royalties to the tune of $7 billion. The firm has also asked regulators to ban the import of some iPhone models – basically older phones that used Intel’s chips. It didn’t get the ban, as a judge ruled it would give Qualcomm an unfair advantage in the U.S., but partial bans were put in place in both Germany and China. For a hot second in 2018, Qualcomm also faced a hostile takeover bid from Broadcom that required the intervention of the Trump administration.

Confused yet? That’s okay. More important than understanding the legal blow-by-blows, is what it means for the industry and consumers as a whole. These tit-for-tat battles have just been the opening salvos for the main trial that began this week in San Diego – and the stakes are incredibly high.

Apple’s suit has been merged with four of its suppliers and collectively, the companies could be seeking as much as $27 billion under antitrust laws. If Apple wins, not only does it get a buttload of money back, it earns some freedom from Qualcomm in terms of what components it uses and from what chipmakers. The same applies to other smartphone makers, like Samsung, which currently makes many of its own chips. Meanwhile, the trial is a matter of existential survival for Qualcomm. Not only would losing upend the chipmaker’s entire revenue model, but also, according to The Financial Times, the potential damages could be more than quadruple Qualcomm’s entire $5.7 billion net income in 2016. That may also have a ripple effect on 5G technologies, of which Qualcomm is positioning itself as a major leader. Still, Qualcomm isn’t going down without a fight and is also seeking up to $15 billion from Apple.

As if to underscore the trial’s seriousness, Tim Cook and Steven Mollenkopf, Qualcomm’s CEO, and Irwin Jacobs, Qualcomm’s co-founder, are all expected to take the stand.

Earlier this year, the Federal Trade Commission took Qualcomm to task over charges that it was an abusive monopoly. The chipmaker’s “no license, no chips” policy was characterized as strong-arming manufacturers, as well as crippling rival chipmakers like Intel. The FTC also contended that smartphones wouldn’t be quite as expensive if not for Qualcomm’s patent licensing. (Of course, Qualcomm says its royalties are negligible when it comes to smartphone pricing.)

As for 5G, the bad blood between Apple and Qualcomm means the former is unlikely to get its hands on Qualcomm’s 5G modems. That means Apple has to rely on Intel (or Huawei – unlikely – or figure out how to make its own chips), but it’s appearing increasingly unlikely that Intel will have a chip ready before 2020.

Only time will tell how the trial shakes out, but whoever wins, the ripple effect will definitely not go unnoticed. [Reuters]